By JOHN COOK, SEATTLE POST-INTELLIGENCER REPORTER

Published 10:00 pm, Thursday, May 16, 2002

Doug Ebstyne, chief executive of Bellevue-based TeraCloud, had some muscle in his corner when he started raising venture capital late last year.

The 11-year-old software company boasted 10 years of profits, a customer list that included 18 percent of the Fortune 1000 and a founding executive team who understood the value of building a business the old-fashioned way.

Those factors certainly assisted Ebstyne on his venture capital quest. TeraCloud, which helps companies such as Boeing, Merrill Lynch and IBM manage data storage, plans to announce $5.5 million in venture financing today. It is the first time the company, formerly known as Trilogy Software, has raised outside capital.

"It is a wonderful story for the times because there is a paradigm change going on," said Ebstyne, commenting on why TeraCloud caught the eye of venture firms. "In general, I think we stood out."

It is a new breed of company that is attracting venture capital these days.

Experienced management teams and profitability are in.

Twenty-something CEOs and concept companies are out.

Entrepreneurs, who only two years ago were encouraged to spend money to get big fast, are starting to adapt to the changing mind-set.

At the WSA Investment Forum this week in Seattle, nearly all of the 15 presenters stressed their companies' ability to attract top-tier customers and generate revenues. A few talked about near-term profitability. Others emphasized experienced management teams who had sold or taken companies public before.

Wavelink CEO David Bullis showed a slide with the logos of The Gap, Costco, Office Depot and other companies who are using Wavelink's wireless networking software.

"Our 10-year experience has allowed us to develop a broad and deep customer base," Bullis told the crowd. He then went on to say that the company, with 5,000 customers in 50 countries, is just three quarters away from profitability.

"I couldn't succeed in the dot-com world, because I couldn't figure out how to lose money," said Frederic Zucker, co-founder and CEO of Translation Technologies. "We have a company that is geared toward making money."

The veteran executive, who previously worked at Pitney Bowes, said he is happy that business fundamentals are returning in the high-tech sector.

"People have come back to the traditional measures of a company's success, that is revenue growth and profitability, as opposed to how long an eyeball sticks on a Web page," said Zucker, who expects his 30-person company to reach profitability in the next 12 months. "Our company was designed from the bottom up to deliver those two measures."

Ebstyne, who took over the top post at TeraCloud two years ago, said he met with more than three dozen venture capitalists during the six-month funding process. Most were pleasantly surprised to find a company that, despite last year's losses, had delivered 10 years of profits. They also were excited about the existing customer base, he said.

TeraCloud, which historically served the mainframe storage market, released a new product in December called SpaceNet that works with all networking infrastructures. Because the company used internal profits to fund the product, Ebstyne says "we have really taken a lot of risk away from the investors."

That impressed Todd Jaquez-Fissori, associate partner at Boulder Ventures, who led TeraCloud's $5.5 million round. But he was equally impressed with the bootstrap mentality the company developed during the past 11 years. That's a quality he said venture capitalists are trying to discover in other start-ups.

"Historically, over the last 20 years, VCs liked to see start-up companies where people poured their heart and soul into it and bootstrapped it," he said. "When a company is bootstrapped, it shows what they can do with very little resources." A small injection of capital then can provide extra firepower to attack an emerging market, he said.

One of the challenges that TeraCloud faces now that it has raised money is keeping the bootstrap culture in place as it moves in a new direction, adds people and starts selling its SpaceNet product to existing customers using the older product.

But Ebstyne said raising money was necessary to go up against some of the "800-pound gorillas" in the storage software market.

"The window of opportunity is wide at the moment, but it will close," he said. "It takes an investment. Our choice would be to grow very slowly and have an unimportant market share or get an infusion at the right time and have an opportunity to be the market leader."